chapter 16: financing government section 1 · chapter 16: financing government section 1 . ......
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Copyright © Pearson Education, Inc. Slide 2 Chapter 16, Section 1
Objectives
1. Explain how the Constitution gives
Congress the power to tax and places
limits on that power.
2. Identify the most significant federal taxes
collected today.
3. Describe nontax sources of revenue.
Copyright © Pearson Education, Inc. Slide 3 Chapter 16, Section 1
Key Terms
• fiscal policy: the methods used by the
government to raise and spend money
• progressive tax: a tax whose rate
increases with one’s income
• payroll tax: taxes withheld from employee
paychecks
• regressive tax: taxes levied at a fixed rate
without regard to the taxpayer’s ability to
pay them
Copyright © Pearson Education, Inc. Slide 4 Chapter 16, Section 1
Key Terms, cont.
• excise tax: a tax on the manufacture, sale, or consumption of goods and services
• estate tax: a tax on the assets of someone who dies
• gift tax: a tax on gifts from one living person to another
• customs duty: taxes on goods brought to the U.S. from abroad
• interest: a charge for borrowed money, usually a percentage of the money borrowed
Copyright © Pearson Education, Inc. Slide 5 Chapter 16, Section 1
Introduction
• How is the Federal Government financed?
– The Federal Government is financed largely by direct
and indirect taxes.
– The major taxes are the individual income tax,
corporation income tax, payroll taxes, excise taxes,
estate and gift taxes, and customs duties.
– The government also raises a smaller amount of
nontax revenue through interest, fees, and sales.
Copyright © Pearson Education, Inc. Slide 6 Chapter 16, Section 1
The Power to Tax
• The first power granted to Congress by the
Constitution is the power to tax.
• Congress taxes to raise revenue to operate the
federal government.
• Congress also uses the taxation power to
require or deny licenses for certain activities in
order to serve the public interest.
Copyright © Pearson Education, Inc. Slide 7 Chapter 16, Section 1
The Power to Tax, cont.
• Though taxes are used to fund the programs that the public expects, many complain about the burden placed on taxpayers.
– How does this cartoon illustrate this view?
Copyright © Pearson Education, Inc. Slide 8 Chapter 16, Section 1
Direct vs. Indirect Taxes
• Checkpoint: How does a direct tax differ from an
indirect tax?
– A direct tax is levied upon a specific individual.
Examples include taxes on personal property or
income.
– An indirect tax can be shifted to another person for
payment. For example, a tax levied on a liquor
producer is passed along to the consumers who buy
the liquor in the form of higher prices.
Copyright © Pearson Education, Inc. Slide 9 Chapter 16, Section 1
Limitations on Taxation
• Checkpoint: How does the Constitution limit the power to tax?
– Congress can levy taxes only for public purposes.
– Congress cannot tax U.S. exports.
– Direct taxes on individuals must be distributed evenly among the States.
– All indirect taxes must be set at the same rate in all parts of the country.
– The federal government cannot tax the government functions of State or local governments, such as providing public education.
Copyright © Pearson Education, Inc. Slide 10 Chapter 16, Section 1
Limitations on Taxation, cont.
• There are exceptions to these limitations:
– The federal government can tax businesses
operated by State and local governments if
they are not considered to represent normal
government functions.
– The 16th Amendment, ratified in 1913, allows
Congress to levy a direct individual income
tax.
Copyright © Pearson Education, Inc. Slide 11 Chapter 16, Section 1
Income Tax
• Income tax on individuals and corporations is the largest source of federal revenue.
• Income taxes are progressive—higher earnings are taxed at a higher rate.
Copyright © Pearson Education, Inc. Slide 12 Chapter 16, Section 1
Individual Income Tax
• Individual income tax is levied on each person’s earnings for the previous year, minus certain exemptions and deductions.
• Tax returns for the previous year must be filed by April 15th. The IRS receives more than 120 million returns each year.
Copyright © Pearson Education, Inc. Slide 13 Chapter 16, Section 1
Individual Income Tax, cont.
• Individual income taxes provide the bulk of
federal revenue.
• Most people have income taxes withheld from
their paychecks. Others pay estimated taxes.
Copyright © Pearson Education, Inc. Slide 14 Chapter 16, Section 1
Corporation Income Tax
• Each corporation must pay income tax.
• There are many deductions allowed. For example, churches and nonprofit or charitable organizations pay no corporate income tax.
Copyright © Pearson Education, Inc. Slide 15 Chapter 16, Section 1
Payroll Taxes
• The federal government collects payroll taxes to finance Social Security, Medicare, and the unemployment compensation program.
• These are regressive taxes, paid at a fixed rate regardless of income.
Copyright © Pearson Education, Inc. Slide 16 Chapter 16, Section 1
Excise Taxes
• Excise taxes are often figured into the retail price of goods and services.
• Excise taxes on tobacco, alcohol, and gambling are called sin taxes, while those on luxury goods are called luxury taxes.
Copyright © Pearson Education, Inc. Slide 17 Chapter 16, Section 1
Gift and Estate Taxes
• Gift taxes are levied on gifts from one person to another, while estate taxes are levied on the assets of someone who dies.
• Most estates are not subject to the tax. Gifts up to $12,000 in one year are tax-free.
Copyright © Pearson Education, Inc. Slide 18 Chapter 16, Section 1
Customs Duties
• Customs duties, also called tariffs or import duties, are charged on many goods imported into the United States.
• They were once the main source of federal income, but are now minor.
Copyright © Pearson Education, Inc. Slide 19 Chapter 16, Section 1
Nontax Revenues
• Checkpoint: What are three examples of federal nontax revenues?
– The government receives interest on money
borrowed from the Federal Reserve System and other loans.
– The government also charges fees for issuing passports, copyrights, patents, and trademarks.
– The sale or lease of public lands also generates government income.